Rent vs Own

Below is a question and answer that may help demystify and add some support to your quest to begin to invest that monthly cash flow instead of giving it away as rent.

Concern: Why buy a home when I can rent one and minimize my obligations?

It may seem "safer" financially to rent a home than to risk being obligated to a mortgage. If you are concerned about monthly obligations, I think as you look at REAL numbers, you will see if you purchase within your means and manage your cash such that you have a “cash cushion”, ultimately you will come out ahead through homeownership. Should your income change, you are exposed to the same risk paying rent that you are making a mortgage commitment.

Recommendation: Look at numbers specific to your scenario with a qualified mortgage lender and then decide! Here is one example.

Current Rent Payment $1500 per month (modest annual increase of 5%). Over a 5 year period you pay over $100,000 and have nothing to show for your investment. In all likelihood you also have some sweat equity in some else's home in the form of small home improvement tasks.

Contrast that with the same monthly payment over a 5 year period in your own home. You purchase the $300K home, estimated monthly payment including taxes and insurance comes in just around $2200. Assuming a 25% tax bracket. You are spending the SAME amount each month after tax, this time your are investing in your asset.

Concern: How do I make that first year obligation of a higher monthly commitment until I receive the tax benefit?

Recommendation: Review your current tax withholdings. You may be able to decrease your withholdings and put those dollars in your hands now in anticipation of your increased deductions (which by the way will include much of your closing costs as well) after you file your tax return.

Concern: I don’t have enough down payment to buy a home.

Recommendation: Are you sure? Have you reviewed your current financial situation and explored the loan offerings available for First Time Home Buyers? There are programs available that allow as little as 3.5% down, AND allow that down payment to come in the form of a gift or a loan from a family member. Review your options and make an informed decision.

Concern: I am still not convinced it makes sense financially.

Recommendation: Play with some what if numbers! Think creatively. Remember, your home will appreciate over time. Eventually you will have equity which can further contribute to your rainy day fund (cash cushion). Though I do not advocate utilizing all the equity in your home, in times of financial emergency, it is comforting to know you could have some extra cash available to you.

The Numbers: Your $300K mortgage, has been decreasing over 5 years and is now $279K. Your investment has now banked you $21K in 5 years! (and that rent….?) Add the fact your home is APPRECIATING, say 3.5%(half the historical norm) puts your home value at $356K and your equity position at $77,000. (Equity $356K - Mortgage Debt $279K = Net Worth $77K)

Congratulations! You get it now. Can you believe you waited this long to look into this amazing financial nugget. Call me and let’s run numbers specific to your finances and our current market.

We offer you a complimentary Rent vs. Own financial analysis.

How much home can you afford? We work together to put your numbers into a financial tool that quantifies in real dollars, how much home you can afford. It encompasses all the benefits of homeownership including tax deductions, appreciation and principle reduction.

Contact our team to schedule a time.